Small businesses call for George Osborne to honour pledge on fair fuel prices

Tim Montgomerie

The Fair Fuel Stabiliser was an idea that George Osborne embraced in opposition but it was a victim of the Coalition Agreement. The Stabiliser cuts the tax on fuel when the underlying oil price is high and increases duty when international oil prices are cheaper - evening out prices that motorists face at the pump.

The Lib Dems support higher and higher petrol duty as part of their climate change politics. The idea was given to the new, independent Office of Budget Responsibility by Mr Osborne and the OBR was asked to consider if it was workable. The OBR's report back was downbeat but last week, during one of his 'PM Direct' Q&As, David Cameron appeared to revive the idea:

“I’m working together with the Treasury on this. I would love to find some way of sharing the risk of higher fuel prices with the consumer. We are looking at this because I do want to help people.”

New pressure to do something about the rising price of fuel comes from two sources this morning:

• Source one is the Federation of Small Businesses. The FSB notes that Britain has the second highest diesel price in Europe - something that is causing great difficulty for most of its members but particularly hauliers competing with continental firms. In Britain 68% of the price at the pump is accounted for by taxes but only 50% in Europe. John Walker of the FSB told the BBC he was "severely disappointed" with Mr Cameron: "In opposition, the Conservative Party promised to put a fuel duty stabiliser in place - something the FSB has been calling for - but they have failed to deliver. As such, they are placing strain on already hard-hit businesses's cash-flow. It is imperative the government acts now and introduces the stabiliser to avoid a relentless flow of fuel duty increases that simply put small firms on a knife-edge."
• Source two is Alex Salmond who is putting a 10p cut in duty at the heart of his SNP's re-election efforts.

Economist Andrew Lilico, a ConservativeHome regular, was the first to ever propose the Stabiliser. He recommended the device during the massive fuel protests of 2000 which nearly destroyed Tony Blair's government. The problem for the Treasury is that the Stabiliser may be fiscally neutral over the course of an oil price cycle but not necessarily over a normal fiscal period and when the deficit needs fixing.

> Some bloggers have suggested a simplistic link between petrol prices and the government's popularity. Anthony Wells has rebutted this.